USD/JPY: Buying Tentative Amid Direct FX Intervention Fears

The Dollar/Yen climbed on Friday, closing better for a sixth straight winning week. The rally was fueled as U.S. Treasury yields resumed their climb overnight, following a two-day decline, further buoying the greenback.

Treasuries did not trade in Tokyo on Friday because of the Good Friday market holiday in the United States, as well as other regions including Australia, Hong Kong and the U.K.

On Friday, the USD/JPY settled at 126.444, up 0.556 or +0.44%. The Invesco CurrencyShares Japanese Yen Trust ETF (FXY) finished at $74.39, down $0.18 or -0.24%.

In other news, Japanese Finance Minister Shunichi Suzuki warned on Tuesday that the government is watching Yen moves and their impact on the economy “with a sense of urgency.”

“Despite repeated verbal intervention over the past few weeks from Japanese policymakers, USD/JPY has continued to rise alongside higher U.S. yields,” Goldman Sachs analysts wrote in a note.

“The odds of direct FX intervention are rising, in our view,” and “should increase significantly once USD/JPY enters the 127-130 range,” they said.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 126.684 will signal a resumption of the uptrend.

A move through 121.284 will change the main trend to down. However, due to the prolonged move up in terms of price and time, the USD/JPY is ripe for a potentially bearish closing price reversal top.

The minor trend is also up. A trade through 125.089 will change the minor trend to down. This will shift momentum to the downside.

The nearest support is a series of minor pivots at 125.887, 125.078 and 123.984.

Short-Term Outlook

The direction of the USD/JPY early Monday is likely to be determined by trader reaction to the first pivot at 125.887.

Bullish Scenario

A sustained move over 125.887 will indicate the presence of buyers. Taking out last week’s high at 126.684 will indicate the buying is getting stronger. This could trigger an acceleration to the upside since this isn’t any major support in the vicinity.

Bearish Scenario

A sustained move under 125.887 will signal the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into the support cluster at 125.089 to 125.078.

If 125.078 fails as support then look for a sharp break into the pivot at 123.984.